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The Internationalization of Futures Companies

December 2017, 13th China (Shenzhen) International Derivatives Forum

Moderator: Thank you all. The next topic is the internationalization of futures business institutes , mainly represented by futures companies. I would like to ask the first question to CEINEX’s Co-CEO Dr. Chen Han. As we all know, the regulation of the entire European financial market will be strengthened from 2018. What opportunities and challenges would futures companies face after they enter into the European market? Dr. Chen, would you please give these financial intermediaries some advice for the development in Europe?

[Market regulation: From one-way learning to mutual learning]

Dr. CHEN: MiFID II will come into effect starting from January 3rd, 2018. This is a measure taken by the EU to step up its supervision of financial markets after the financial crisis. It is a very hot topic recently. In fact, financial institutions around the world, including those who are sitting here today and have already established futures agencies, securities agencies or banks branches in Europe, currently mainly in London, must face MIFID II directly. GF Financial Markets (UK) Limited, for instance, is doing preparation for dealing with MIFID II. The markets worries that regulatory oversight will increase operating costs and affect market liquidity, which should exist objectively . On the one hand, I feel that China should learn regulation and laws from other countries; on the other hand, after experienced the financial crisis, EU introduced the revision of MiFID - MiFID II. I discovered that some rules from MiFID II reflect that developed countries have instead studied some regulatory measures and rules designed by China, which was signed base on a high credit risk environment such as the penetrating supervision of China's futures market.. The MiFID II requires financial institutions to implement penetrating information records for their clients so that regulators can see who your customers are. This is a convergence of regulations among different countries. In the course of market liberalization, China used to learn more from the developed markets, but now we learn from each other after more and more Chinese companies and financial institutions went global. Interestingly, international markets now are following some Chinese practices that were not understood and accepted by them before.

[Futures business institutes should provide clients with comprehensive financial services for their internationalized development]

Dr. CHEN: a relevant topic: under the opening-up background, how should futures institutes develop the international business? I have worked for two years at CEINEX. Especially in this year, I have a very deep feeling that the biggest problem faced by Chinese companies after going global is serious lag of financial service provided to them. Today we are discussing derivatives. The service of derivatives related risk management is also an important component of financial service. “One Belt, One Road” initiative is a new blueprint for globalization in the new era. More and more Chinese companies are going out under this new blueprint. Over past 30 years of reforming and opening up, we have built up production technology and capacity to help the world, especially to help some underdeveloped areas to strengthen their infrastructure construction. What kinds of risks will corporate clients of our futures companies face after they go global one after another? On the one hand, they must face the currency exchange risk; on the other hand, there is risk of price fluctuations of raw materials.

In fact, China has become the largest trading nation in the world. The impact on prices of bulk commodities behind the trading is also a manifestation of the competitiveness of a country. China, as one of the few countries in the world that are not only commodity producing countries, but also commodity consuming countries, needs to have a bigger voice in pricing and influencing of bulk commodities. Globalization and internationalization belong to natural characters of commodities. Regarding the pricing of commodity futures, we must open the door and invite everyone to join in, so that the prices is really international influential.

On the one hand, for how to introduce European investors into China's onshore commodity futures market through China's futures institutions, there are many new opportunities. and we called this “inviting in”. On the other hand, we called “going out”, now our futures institutions are going out of the mainland, to Hong Kong, to Singapore, to Chicago, and to Britain. Due to Brexit, there exist the risk of losing EU financial passports. Accordingly, our Chinese financial institutions must make more consideration about their Lay-out in Europe and make the correspondingly structural adjustment.

[Qualities of international talents]

Moderator: The development of enterprises is inseparable from the talent. Regarding the international talent, what kinds of qualities should they have?

Dr. CHEN: Firstly, open mind and broad vision. Secondly, the ability of continuous learning. Thirdly, cross-cultural communication skills and adaptability. Last but not least, self-confidence for our Chinese culture.